TerraForm Power Reports Third Quarter 2019 Results

NEW YORK, Nov. 11, 2019 (GLOBE NEWSWIRE) — TerraForm Power, Inc. (Nasdaq: TERP) (“TerraForm Power”) today reported financial results for the quarter ended September 30, 2019.
Recent HighlightsNet Loss, Adjusted EBITDA and CAFD of $(62) million, $195 million and $48 million, respectively for the third quarter of 2019. This represents an increase in Net Loss of $(43) million, a decrease in Adjusted EBITDA of $2 million and an increase in CAFD of $2 million, compared to the same period in 2018We closed on the acquisition of an approximately 320 MW Distributed Generation portfolio in the United States for ~ $720 millionWe executed a 10-year outsourcing Framework Agreement with SMA Solar Technology (“SMA”) to provide operations and maintenance for our North American solar fleet, which is expected to reduce costs by $5 million per annum and mitigate operational risk of the portfolio through performance guaranteesWe issued $300 million of equity, priced at $16.77 per share, which represents a 50% premium to the stock price as of the beginning of the yearWe upsized our corporate revolver by $200 million to $800 million and issued $700 million of 10-year senior notes at a coupon of 4.75%, locking in debt service savings of ~$6 million per yearDeclared a Q4 2019 distribution of $0.2014 per share, implying $0.8056 per share on an annual basis“We made important progress executing our business plan as we signed an innovative framework O&M agreement for our North American solar fleet and continued to advance our wind repowering initiatives,” said John Stinebaugh, CEO of TerraForm Power.  “Subsequent to quarter-end, we completed three corporate financing transactions and now have $1.2 billion of corporate liquidity to drive future growth.”Results———⁽¹⁾ (Loss) Earnings per share is calculated using Net (loss) income attributable to Class A common stockholders divided by the weighted average anti-dilutive Class A common stock shares outstanding. For the three months ended September 30, 2019 and September 30, 2018, net (loss) income attributable to Class A common stockholders totaled ($55) million, and ($34) million, respectively. For the nine months ended September 30, 2019 and September 30, 2018, net (loss) income attributable to Class A common stock holders totaled ($67) million, and $28 million, respectively. For the three months ended September 30, 2019 and September 30, 2018, the weighted average anti-dilutive Class A common stock shares outstanding was 209 million and 209 million, respectively. For the nine months ended September 30, 2019 and September 30, 2018, weighted average anti-dilutive Class A common stock shares outstanding totaled 209 million, and 173 million, respectively.
⁽²⁾ Non-GAAP measures. See “Reconciliation of Non-GAAP Measures” section.
⁽³⁾ CAFD per share is calculated using CAFD divided by the weighted average diluted Class A common stock shares outstanding.OperationsEarlier this month, we executed a 10-year Framework Agreement with SMA to provide O&M services, on a full-wrap basis, for our North American solar fleet. Over the next nine months, we expect to enter into project-level long term service agreements (“LTSA”), pending receipt of consents from lenders and tax equity partners, and transition operations to SMA.  The 10-year agreement covers approximately 1 GW (excluding the AltaGas portfolio) of our existing solar capacity and locks in pricing that is approximately $5 million less than our 2018 cost base.  In addition, it will reduce our operating risk with performance guarantees that are consistent with our LTA .The Framework Agreement provides incentives for SMA to identify opportunities to make accretive investments in our fleet such as repowerings and upgrades of inverters. The Framework Agreement also includes a volume discount, whereby we can add additional assets, such as the AltaGas DG portfolio, and benefit from discounts on pricing provided we meet or exceed certain volume thresholds.During the third quarter, we also executed LTSAs with Vestas, GE and Siemens Gamesa to replace the legacy O&M operator of our European wind fleet. All of our European wind fleet is now being operated by original equipment manufacturers.  The LTSAs have availability guarantees that will incentivize the operators to perform at levels at or above industry standards and will yield approximately $4 million in annual cost savings. With respect to implementation of the LTSAs for our North American wind fleet, we made good progress completing required capex in order to fully transition operations to General Electric (“GE”). We have completed nearly 100% of blade repairs, excluding Clipper turbines that we are repowering, identified in our 2018 inspection program, and we plan to complete the additional blades repairs identified during our 2019 blade inspection program by mid-2020.  We have also completed all required repairs to gear boxes and pitch drives.  Going forward, capex to maintain our fleet of this nature will be GE’s responsibility under the full-wrap LTSAs.During the quarter, we made progress on our wind repowering program. We have received a special use permit to commence the repowering of our 125 MW Cohocton wind farm in New York and expect to receive a similar permit for the 35 MW Steel Winds repowering by the end of this year. We have also received the vast majority of all lease consents from landowners for Cohocton and are currently negotiating lease amendments with the two major landowners for Steel Winds. With regards to interconnection, we received a determination of non-materiality from the New York Independent System Operator (“NYISO”) for both Cohocton and Steel Winds. As a result, we are well underway towards achieving notice to proceed for both of these repowering projects. Over the next few months, we are focused on the following milestones: executing a Framework Agreement with GE that governs the key commercial terms of the turbine supply agreements and tax equity contribution agreements, entering into power purchase agreements or long-term financial hedges and closing construction loan agreements. We remain very excited about these projects, as we believe we will be able to earn returns that exceed our target range with the current regime for renewable energy credits in New York and a hedge or power contract based upon current wholesale market pricing, with no premium for renewable power.  Finally, the repowerings will reduce risk going forward due to replacing obsolete Clipper equipment with GE equipment under the full-wrap LTSA.Financial ResultsIn the third quarter of 2019, TerraForm Power delivered Net Loss, Adjusted EBITDA and CAFD of $(62) million, $195 million and $48 million, respectively. This represents an increase in Net Loss of $(43) million, a decrease in Adjusted EBITDA of $2 million and an increase in CAFD of $2 million, compared to the same period in 2018. On a per share basis, CAFD of $0.23 reflects an increase of 5% compared to the same period in 2018, and a net loss per share of ($0.26) compared to ($0.16) in the same period of 2018. Our results were primarily driven by higher SREC solar incentives, O&M cost saving initiatives and higher production at our regulated wind farms in Spain, partially offset by higher management fees, lower market prices in Spain and lower realized prices in Texas.TerraForm Power’s generation this quarter was approximately 9% lower than our LTA, primarily due to lower availability in North America, in particular at our Central and Texas wind portfolios, and to a lesser extent, lower wind resource in Hawaii where we have higher priced contracts. Availability in our Central and Texas wind portfolios was negatively impacted due to downtime associated with blade repairs and other maintenance activities associated with transitioning operations to GE.  In Texas our average realized price reflected our generation profile which was weighted towards off-peak hours.  During periods of extreme heat, our generation was less than our hedge obligation which required us to cover our position at a loss, and in September we were impacted by negative basis caused by maintenance outages on Energy Transmission Texas’s (“ETT”) transmission system in the Panhandle.  Over the coming two years, we expect market conditions in Texas to moderate as 15,000 MW of renewables, including 5,000 MW of solar, are expected to come on line, which should improve reserve margins to more normalized levels.  Furthermore, the maintenance of the ETT transmission system should be completed by the end of 2021.Liquidity UpdateIn October, we leveraged attractive market conditions to bolster our liquidity and position ourselves for additional growth. Below are the key corporate initiatives that we completed:Equity offering:  We closed a $300 million equity offering ($250 million public offering and $50 million concurrent private placement to Brookfield).  We priced the equity offering at $16.77 per share, which represents a 50% premium to the stock price as of the beginning of the year.Senior notes issuance: We closed a $700 million offering of 10-year senior notes.  The notes priced at a coupon of 4.75%.  Net proceeds were used to repay our $300 million notes due 2025 and our $344 million Term Loan B due 2022. The refinancing will lock in debt service savings of ~$6 million per year and extend our maturity profile, such that we have no corporate maturities until 2023.Revolving credit facility: We increased commitments under our corporate revolving credit facility from $600 million to $800 million by adding three additional lenders and extending the maturity date by one year to October 2024.At the project level, we closed the final tranche of our permanent financing plan for the Saeta acquisition in August, comprised of three wind farms totaling 111 MW. The $131 million senior secured notes have a 13-year term and are priced at a spread of T+175 bps.  Overall, the plan raised $390 million in non-recourse debt, $40 million in excess of our target.Upon completion of these transactions, our corporate liquidity as of the end of October stands at $1.2 billion, including our $500 million sponsor line with Brookfield.Growth InitiativesIn September, we closed the acquisition of approximately 320 MW of DG from AltaGas, drawing on a $475 million bridge facility; the facility is a senior secured term loan with a one-year term and an initial spread of L+100 bps. We plan to refinance this loan with a permanent project-level financing in the first half of 2020.  In total, we now own approximately 750 MW of DG in North America.  In light of the growing scale of this portfolio, we are in the process of making DG a stand-alone business within Terraform Power. We believe that this will ensure that we provide the level of focus on this business-line in order to execute our strategy of enhancing the value of our existing assets and, with the support of Brookfield, developing a pipeline of new development projects and driving growth through M&A.Over the past months, we have been pursuing two investment themes. We believe that there is a consolidation play in the Spanish renewables market as the sector is fragmented with many assets owned by private, under-capitalized developers. In addition, we continue to focus on distributed generation where we see attractive risk-adjusted returns.  In North America we are seeing returns on DG at premium levels to utility solar as a result of the scale of our existing platform and potential for operating synergies.  As a result of our business development initiatives, we have a robust pipeline of opportunities, including  solar acquisitions in Spain totaling nearly150 MW that would require over $150 million of equity investment in which we are in advanced stages of negotiations.Legal and Regulatory UpdateIn Spain new elections were held on November 10th. The Spanish Socialist Workers’ Party (“PSOE”) won the largest number of seats in Congress, yet again they were unable to win a majority of seats to form a coalition government. The PSOE will now have to negotiate with the other parties with regards to next steps, and a resolution is not expected before early 2020. We are actively monitoring political developments in Spain, but we continue to believe that the political environment is positive for the regulated rate of return as renewables enjoy broad support across the political spectrum.Announcement of Quarterly DistributionOn November 6, 2019, our Board of Directors declared a quarterly distribution with respect to our Class A common stock of $0.2014 per share. The distribution is payable on December 16, 2019, to stockholders of record as of December 2, 2019. This distribution represents our eighth consecutive quarterly distribution payment under Brookfield’s sponsorship.About TerraForm PowerTerraForm Power owns and operates a best-in-class renewable power portfolio of solar and wind assets located primarily in the U.S. and E.U., totaling more than 4,000 MW of installed capacity. TerraForm Power’s goal is to acquire operating solar and wind assets in North America and Western Europe. TerraForm Power is listed on the Nasdaq Stock Market (Nasdaq: TERP). It is sponsored by Brookfield Asset Management, a leading global alternative asset manager with more than $500 billion of assets under management.For more information about TerraForm Power, please visit: www.terraformpower.com.Contacts for Investors / Media:Sherif El-Azzazi
TerraForm Power
investors@terraform.comQuarterly Earnings Call DetailsInvestors, analysts and other interested parties can access TerraForm Power’s 2019 Third Quarter Results, as well as the Letter to Shareholders and Supplemental Information, on TerraForm Power’s website at www.terraformpower.com.The conference call can be accessed via webcast on November 12, 2019 at 9:00 a.m. Eastern Time at https://edge.media-server.com/mmc/p/nhx4v277.  A replay of the webcast will be available for those unable to attend the live webcast. To participate via teleconference, please dial 1-844-464-3938 toll free in North America, or 1-765-507-2638 for overseas calls at approximately 8:50 a.m. Eastern Time; conference ID: 5899204.Safe Harbor DisclosureThis communication contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements involve estimates, expectations, projections, goals, assumptions, known and unknown risks, and uncertainties and typically include words or variations of words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “seek,” “estimate,” “predict,” “project,” “opportunities,” “goal,” “guidance,” “outlook,” “initiatives,” “objective,” “forecast,” “target,” “potential,” “continue,” “would,” “will,” “should,” “could,” or “may” or other comparable terms and phrases. All statements that address operating performance, events, or developments that TerraForm Power expects or anticipates will occur in the future are forward-looking statements. They may include estimates of expected cash available for distribution (“CAFD”), distribution growth, CAFD accretion, earnings, revenues, income, loss, capital expenditures, liquidity, capital structure, margin enhancements, cost savings, future growth, financing arrangements and other financial performance items (including future distributions per share), descriptions of management’s plans or objectives for future operations, products, or services, or descriptions of assumptions underlying any of the above. Forward-looking statements provide TerraForm Power’s current expectations or predictions of future conditions, events, or results and speak only as of the date they are made. Although TerraForm Power believes its expectations and assumptions are reasonable, it can give no assurance that these expectations and assumptions will prove to have been correct and actual results may vary materially.Important factors that could cause actual results to differ materially from TerraForm Power’s expectations, or cautionary statements, include but are not limited to, risks related to weather conditions at our wind and solar assets; our ability to enter into contracts to sell power on acceptable prices and terms, including as our offtake agreements expire; government regulation, including compliance with regulatory and permit requirements and changes in tax laws, market rules, rates, tariffs, environmental laws and policies affecting renewable energy; our ability to compete against traditional utilities and renewable energy companies; pending and future litigation; our ability to successfully close the acquisitions of, and integrate the projects that we expect to acquire from, third parties, including our ability to successfully integrate our recently acquired portfolio of solar distributed generation assets; our ability to successfully achieve expected synergies and to successfully execute on the funding plan for our recently acquired portfolio of solar distributed generation assets, including our ability to successfully close any contemplated capital recycling initiatives; our ability to realize the anticipated benefits from acquisitions; our ability to close, implement and realize the benefit of our cost and performance enhancement initiatives, including long-term service agreements and our ability to realize the anticipated benefits from such initiatives; the willingness and ability of counterparties to fulfill their obligations under offtake agreements; price fluctuations, termination provisions and buyout provisions in offtake agreements; risks related to the ability of our hedging activities to adequately manage our exposure to commodity and financial risk; risks related to our operations being located internationally, including our exposure to foreign currency exchange rate fluctuations and political and economic uncertainties; the regulated rate of return of renewable energy facilities in our Regulated Wind and Solar segment, a reduction of which could have a material negative impact on our results of operations; the condition of the debt and equity capital markets and our ability to borrow additional funds and access capital markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness in the future; operating and financial restrictions placed on us and our subsidiaries related to agreements governing indebtedness; our ability to identify or consummate any future acquisitions, including those identified by Brookfield Asset Management Inc.; our ability to grow and make acquisitions with cash on hand, which may be limited by our cash dividend policy; risks related to the effectiveness of our internal control over financial reporting; and risks related to our relationship with Brookfield, including our ability to realize the expected benefits of sponsorship.TerraForm Power disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data, or methods, future events, or other changes, except as required by law. The foregoing list of factors that might cause results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties which are described in TerraForm Power’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in subsequent Quarterly Reports on Form 10-Q, as well as additional factors it may describe from time to time in other filings with the Securities and Exchange Commission. TerraForm Power operates in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and you should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.